Yahoo Display Ad Revenue Stabilized in Q3

The last few months have been a period of stabilization for Yahoo, according to CFO Tim Morse.

Revenue and net income were both relatively flat quarter-to-quarter, where they had been dropping for the previous two quarters. In addition, display ads on Yahoo’s own sites showed its second strong quarter of growth, Morse told analysts on a conference call today.

“In the third quarter we saw strength in key areas of our business,” Morse said. “Our efforts to reposition Yahoo are still in the early stages, but we’re confident that our investments in the business will enable us to capitalize on growth opportunities as the economy recovers.”

Outspoken Yahoo CEO Carol Bartz was absent from the quarterly call due to illness, according to Morse. So Morse undertook the job, sans Bartz’s colorful language, to highlight Yahoo’s results.

Yahoo earnings were better than analysts expected, with adjusted net income of $213 million and revenues of $1.58 billion. Net income was flat year-to-year, and revenue was down by 12 percent, but both numbers slightly beat analyst estimates.

Marketing services revenue, which includes both search and display advertising, declined 12 percent year-over-year, but was flat compared to the previous quarter. Revenue from Yahoo’s own sites dropped by 15 percent to $851 million, compared to $1.00 billion for the third quarter of 2008.

That decrease was primarily driven by a 19 percent decline in search advertising revenue and an 8 percent decline in display advertising revenue, according to Morse. But the future is looking up for display ads, he said.

“Ad spending is starting to free up, and we are a great value for advertisers,” he said.

Marketing services revenue from affiliate sites were $526 million for the third quarter of 2009, a 6 percent decrease compared to $561 million for the same period of 2008.

Yahoo is predicting a strong fourth quarter, with revenue expected to come in between $1.6 billion and $1.7 billion.

Bartz, who came on board as CEO in January, has been tasked with righting the Yahoo ship. During her tenure, she has begun re-focusing Yahoo on what she says Yahoo does best: “being the center of people’s online lives.”

That means focusing on display ads and “the search experience,” but not on organic search itself. “The next revolution will not be in the algorithms that generate search results, but in creating a better and more personal search experience,” Morse said. He compared an organic search index to a microprocessor chip from Intel, which is used by manufacturers like Dell, HP and Apple. As with search, the differentiation comes from what’s layered in on top of the chip, he said.

Yahoo’s own search is set to be replaced next year with Microsoft’s Bing technology, if the proposed deal passes regulatory hurdles.

It also means a renewal of Yahoo’s homepage, e-mail, and mobile properties, while looking for buyers for some of the non-core sites. Yahoo is also spending big on a “brand revitalization” campaign, committing $18 million in the third quarter and $45 million to the branding campaign in Q4.

“We expect it to lead to more users over time. But it’s really about revitalizing the company, to get us back to where we were and refresh how people think of us,” Morse said. It’s also important for Yahoo to define its corporate identity, both internally and externally, he added.

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